Miliband pledges to scrap non-dom status

A Labour government will end the controversial non-dom status which allows some of the country's wealthiest individuals to avoid paying UK taxes on their worldwide incomes, Ed Miliband will announce.

The Labour leader will say the 200-year-old rule, which applies to around 116,000 people, makes Britain an "offshore tax haven for a few" and can "no longer be justified".

However the Tories immediately warned that it would lead to a "flight of talent and a flight of cash" from the UK.

Under Labour's reforms, anyone who comes to the UK and makes it their permanent home will pay tax in the same way from April 2016.

The UK 'is a tax haven

In a speech in Warwickshire, Mr Miliband will say there is a "distorted" view of wealth creation that has led to an idea that the richest "should be allowed to operate under different rules".

"The problem is, it isn't true. It is a recipe that doesn't work for most working people, doesn't work for business and doesn't work for Britain," he will add.

The tax status applies to people who are "non-domiciled" in the UK because they have their permanent home elsewhere.

They can opt to only pay tax on income that is brought into the country and pay no UK tax on their earnings or capital gains outside the country.

Leaked files that emerged earlier this year revealed that many non-doms had been hiding their money in HSBC's Swiss private bank and were able to avoid taxes on their wealth anywhere in the world.

Mr Miliband is expected to point to the fact that the "tax gap" - the difference between the amount owed and the amount collected - has risen to £34 billion under the coalition.

"Tax havens are continuing; the scandal at HSBC has been brought to the heart of government; the hedge funds are given the green light to avoid paying their fair share; HMRC seems to operate double-standards. It's one law for a few, other law for everybody else," he said.

"This means higher taxes for working people and businesses, as well as starving money from our public services. In a world of tough, difficult choices, we just can't allow this to continue."

But Conservative Chief Whip Michael Gove said it was unclear whether the plan would raise any more money for the Treasury and warned that it could drive people out of the country.

"I think the first thing to ask is, will this actually contribute more money to the Exchequer?" he told BBC2's Newsnight.

"There are some suggestions that this could lead to a flight of talent and a flight of cash from this country and the Exchequer could be worse off."

A Conservative spokesman added: "Ed Miliband did nothing about aggressive tax avoidance and evasion for 13 years - the number of non doms exploded under Labour.

"We've increased the non dom levy and cracked down on wealthy foreigners who avoid tax by ensuring they now pay stamp duty on their properties."

Mr Miliband will argue non-dom tests "are not very rigorous" and can be granted to people who have a burial plot or property abroad. Non-dom status is often inherited through the father so can apply to people who were born in Britain.

He will say: "It works against every business and working person in this country who has to pay more as a result, everybody who relies on public services like the NHS, everybody who believes in Britain and a fair and modern country.

"The United States doesn't do it. No other major country in the developed world does it. No one would propose doing it now if didn't already exist. One rule for some and another for others? It is unjust, it does not work, it holds Britain back and we will stop it.

"The next Labour government will abolish the non-dom rule. And we will replace it with a clear principle: anyone permanently resident in the UK will pay tax in the same way," he will add.

He will say that under Labour's plans - modelled on what other countries already do - "real temporary residents" who are in the UK for a limited period, will only have to pay tax on what they earn the UK as they pay tax in their permanent country of residence.

Supporters of the non-dom status say it benefits the UK by encouraging wealthy foreign investors to spend time in the country. In December last year Chancellor George Osborne announced that non-doms who have lived in Britain for 12 of the last 14 years will have to pay a £60,000 annual levy, up from the previous £50,000. A new £90,000 rate was introduced for those resident for 17 of the past 20 years.

David Cameron, meanwhile, is unveiling plans for pupils who do not achieve a good pass in English and maths tests at 11 to take a resit in their first year of secondary school.

The Conservatives say it will ensure that 100,000 pupils who leave primary school each year unable to read, write or add up properly will have caught up by the time they are 12.

Liberal Democrat leader Nick Clegg is campaigning on green business measures in Wiltshire.

The Liberal Democrats said they planned to take an additional £130 million from non-doms by reforming eligibility rules and "significantly increasing the charges".

Chief Secretary to the Treasury Danny Alexander said: "The key tests are what maximises revenue for the exchequer and best supports our economic recovery."

He laid into Labour, who he said "failed spectacularly to do anything about it" during 13 years in office.

"Non-dom numbers exploded under Tony Blair and Gordon Brown, more than doubling when Ed Miliband was an adviser in the Treasury," he said.

"It's clear that non-dom status is open to abuse which is why Liberal Democrats in government have ensured those with the broadest shoulders make a fair contribution to Britain.

"We came down hard on those who stayed in the UK for long periods without paying their share - increasing charges on non-doms year-on-year since 2010. Labour used to allow non-doms to sit in the House of Lords, Lib Dems stopped that.

"In the next parliament we want to go further by radically reforming the rules and significantly increasing the charges for non-doms to secure an additional £130 million for the public purse."

The Chancellor insisted Labour's policy would not scrap non-dom status and only amounts to "tinkering around the edges", making changes to rules on how long someone can be a non-dom.

Mr Osborne said: "The small print of Labour's policy makes clear that they are not actually abolishing non-dom status.

"This confusion is another reminder of why they can't be trusted with our economy.

"Either they are going to abolish non-dom status altogether which would cost our country hundreds of millions of pounds in lost tax revenues and lost investment - the reason they did nothing on this during 13 years in office.

"Or they are just tinkering around the edges and making small adjustments to the rules on how long people can be non-dom.

"We've taken the right approach to this issue by raising more money from non-doms than any previous government. And we will raise £5 billion a year in the next parliament by continuing to crack down on tax avoidance and evasion, including abuses of the non-dom rules."

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